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By: john | September 27, 2017

What's going to hapen to our interest rates?
Interest Rates

Interest rates to move by at least 200 basis points, they say. But how? And, when?

The RBA flagged interest rate rises are ahead and warned that interest rates will move back towards the median rate of around 7.5%. That's at least a 2% hike (200 basis points in financial industry talk).

Much of the talk was in the first half is this year when housing prices were still increasing in Sydney and Melbourne and prior to interventions of - the ceasing of foreign lending policy; interest only restrictions, lending calculation tightening; interest interest rate increases; and several other minor policy tweaks.

Mind you, the RBA has not increased interest rates since the last rate cut from 1.75% to the current 1.50% position, since August 2016. So why are they warning about large and progressive increases in interest rates? Does this mean that it's all hype and hot air?

It would be easy to assume that interest rates won't rise based on the reluctancy of the RBA to move interest rates now, but there are several factors that can trigger interest rate rises... and several factors that will serve to keep a hold on interest rates... at least for the moment.

One of the indicators that is closely being tracked is wage earnings. A recent spout of job growth figures is bring some heat to the topic amidst a flurry of commentators 'pouring cold water' over the idea of interest rates rising in the short term. Naturally, it's harder to predict what will happen in the longer outlook. An increase in the wage earnings is one factor which can force strong pressure on the RBA to move on interest rates with confidence.

Global (cash) interest rates are expected to rise mid next year and again some time in 2019. This is expected to place further pressure on the RBA to lift interest rates locally, however, Reserve Bank governor Philip Lowe insists the current rising global interest rates will not cause the RBA to hastily drive interest rates up in-sync. Mr Lowe did however warn that global cash rate rises will eventually influence the decision to move on interest rates.

The recent figures showing a flattening of the Sydney housing market prices, has maybe eased some degree of pressure for the time-being whilst analysis continue to watch the charts intently to gain a clearer view of the forecast at least for the next 12 - 18 months.

Despite the Sydney market slow-down, many are still predicting a housing correction on the cards for both Sydney and Melbourne markets. Only time will tell, as one camp is adamant of this and the other camp is whipping out statistics to show... the gravy-train is not yet finished, at least not in Melbourne, suggesting a housing shortage is emerging already. Other market commentators are pointing to the Brisbane market heating up and starting to run it's race.

Based on the current predictions, we might not see an interest rate rise until as late as mid next year. Although the past is no prediction of the future, it seems the RBA are not in any inclination to move on any rate change decisions hastily or without strong indicators supporting such a decision. Maybe a wise decision applauded by many, along the lines of the saying, '...when in doubt, do nothing!'

One thing is for sure, some commentators will have their own agenda, but this market is by no means any easier to read. There's a delicate balancing act playing out month by month. We'll just have to continue to watch the market reports as it unfolds.

John J Maxwell, senior mortgage and finance consultant, Cocalex Holistic Consulting

If you have any questions or contributions relating to this article, please take the time to comment below and share your thoughts or opinions for the benefit of others reading this. No doubt this topic commands interaction, innovation and collaboration. The more answers that are delivered, the more questions that will arise. If you have any personal questions or queries, please feel free to contact me on 0434 455 225 or email: [email protected]

About the author:

John Maxwell is founder and Senior Finance & Business Strategist at Cocalex Holistic Consulting. John has over 17 years' experience in the financial services sector, and has owned and managed 9 mortgage franchises and has developed a background across the holistic financial services realm. He has particular focus and passion for: Leadership Training and Development, Franchise Development and Business Networking.


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